Inventory management is a critical feature of effective and fiscally responsible management of a business' goods and services. Unused inventory does not earn money or is not invested. On many occasions, inventory is costly to maintain and may be more expensive to maintain that the inventory's market value. Inventory may create expense for storage, personnel, security, rental or lease costs, maintenance, and the like. Physical inventory cannot be invested in the form of loans, stocks, bonds, or other interest bearing instruments. The cost of cash inventory is the lost opportunity investment revenue.
Some industries, such as financial institutions, are required by government laws and regulations to maintain a minimum quantity and type of inventory that may be easily accessible. For example, some financial institutions maintain a minimum quantity and type of cash to service the businesses' end consumer or purchaser during financial transactions that occur over the course of a period of time, such as one business day. Carefully calculating the quantity and type of cash to maintain for each business permits the financial institution to service its business (e.g., clients or customers) and invest the most capital possible. A unique balance may be struck between providing the customer with the necessary quantity and denominations of cash and using the financial institution's capital to invest in other areas (i.e., to permit the cash to be invested in loans, stocks, bonds, or other interest earning instruments). The cost of cash inventory is the lost opportunity for investment revenue.
In the financial industry, customers need cash and various denominations of cash. Many manufacturers, retailers, or any corporation that provides product or goods to a purchaser needs to obtain cash for transacting purchases, returns, and the like. The financial institutions may maintain a minimum amount of cash and cash of suitable denominations for their customers to meet their physical cash needs such as payday, bonus time, financial transactions with purchasers, and the like. Oftentimes, financial institutions send their customers cash on a daily basis in accordance with the customer's needs. The needs of the customer may change on a daily, weekly, monthly, seasonally, quarterly, or yearly basis and the quantity and denominations of cash need to service the customer may change frequently.
Many financial institutions will maintain more than the minimum amount of cash needed to service a customer in order to prevent depleting their cash or to prevent failing to meet the customer's needs in response to a higher cash request. As with all inventory management, the quantity and denomination of cash must be controlled and maintained to provide the proper quantity and denominations of cash to the customers when needed, but to additionally provide the business with sufficient capital that can be invested, loaned, or otherwise used as an asset that may earn the customer money.
Cash that is left in a cash vault is expensive to maintain and may have high operations costs such as providing security to protect the cash and maintaining the personnel and building operations. Ideally, a customer would keep a minimum amount of cash in a cash vault to provide its purchasers with the cash needed to run their businesses. However, many financial institutions may overestimate the amount of cash required by their customers because they cannot calculate the amount of cash that is required to service the customer. The financial institution loses investment opportunities when the cash is not utilized by a customer and is stored in a cash vault.
An analysis tool is needed that is capable of calculating the proper balance between incoming and outgoing volumes of cash for a customer of a financial institution. Further, an analysis tool may consider the variations in cash or inventory needs of a customer over a period of time and may include analysis relating to the historical features of the customer's inventory needs. Financial institutions struggle to calculate the minimum amount of cash needed to service their customers without decreasing their earning power for investing the cash in other interest earning instruments.